The US has turned a corner in competitiveness

Economic competitiveness and productivity are key to economic growth and future prosperity: nothing is more crucial in a nation’s long-term planning. If America’s leaders are to preserve the long-standing competitiveness of our country, it is vital to continue to find ways to overcome political differences in the interest of consistent, long-term planning.

The newly-published edition of The Global Competitiveness Report, the World Economic Forum’s annual study on the long-term economic health of nations, certainly offers encouraging signs that the economic outlook for the United States is brightening. After slipping in the rankings for four successive years, the US reverses this trend in 2013, rising from 7^th place last year to 5^th in the Forum’s index measuring national competitiveness.

Explore our competitiveness tracker.

When the Forum compiles its report each year, we seek to do more than just compare a country to its neighbours and trading partners. We try to examine and understand the factors and dynamics that drive competitiveness; that provide rising living standards and gainful employment. The United States is clearly an innovation powerhouse and this bodes well for the future, particularly at a time when innovation is playing more and more of a central role in underpinning economic success.

We also find the strength of a country’s political institutions to be a common element among the world’s most future-proof economies. The US constitution may have many admirers around the world for its system of checks and balances between legislative, executive and judicial arms, but the gridlock that has characterized recent years has undoubtedly hurt competitiveness. Nevertheless, subtle year-on-year improvements in such areas as “public trust in politicians”’ (where the US ranks 50^th out of the 148 countries featured in the report) and “transparency of policy-making” (48^th) suggests concerns may have subsided somewhat over the past twelve months.

This pragmatic leadership approach needs to continue, considering the other areas requiring urgent attention. The most worrisome of these is in what The Global Competitiveness Report defines as the “macroeconomic environment” pillar of competitiveness. Here, the US now ranks 117^th – down from 111^th last year, and 66^th in 2008. Much of this low ranking is explained by the delays in tackling the budget, but it demonstrates nonetheless how urgently lawmakers need to define a vision for a sustainable fiscal future.

Sustainability is needed because it enables investment, which is key to future prosperity. Health and education, two basic and essential building blocks of a vibrant future economy, are causes for concern, with the US ranking 37^th on the quality of its primary education and an alarming 41^st for infant mortality.

In both these areas, interestingly, the problem is not so much insufficient investment as insufficient return on that investment. High spending on education is not necessarily yielding the talent our future workforce needs, while the world’s most expensive healthcare system needs to work harder if it is to produce the kind of healthy workforce that is central to a competitive economy.

Trends are reversible, of course, and for inspiration on to how to fix these, it may be instructive to look at how confidence has been restored in the US financial markets. A major contributor to the country’s slippage from the top spot in the rankings five years ago, renewed business confidence in the Federal Reserve’s stress testing of US banks, and the effective cleaning up of their balance sheets, has helped the country recover to 58^th place on the “soundness of banks” metric, from 80^th last year and a nadir of 111^th in 2010. The US has also seen a significant recovery in its historically strong access to financing.

The US retains many strengths which ought to stand it in good stead for building long-term competitiveness, not least the economies of scale made possible by the massive size of its market. It can also depend on high labour market efficiency, and sophisticated and innovative businesses. Higher education, too, remains an asset  – in particular its links with business on research and development.

Building on these strengths and creating a future fit for our children is a mission Americans must undertake together. Our leaders can play a part by creating a clear, shared understanding of the sacrifices and investment that are needed today to secure a competitive and prosperous tomorrow. With this as a goal, America can look forward to a bright future.

Competitiveness at a glance: See how well different countries perform on our latest Global Competitiveness Index. 

Author: Jennifer Blanke is Chief Economist at the World Economic Forum in Geneva, Switzerland.

Image: The American flag is seen in front of the Washington Monument in Washington D.C. Reuters/Molly Riley.